February 2017 Market Update

The stock market continues to love the new order. The Dow Jones closed over 20,000 for the first time in history on Wednesday, January 25. But there is also nervousness over what appear to be impulsive directives from the new President whose preferred means of communicating is by Tweet.

Perhaps the most consequential actions of the new administration regarding the economy were the disagreement between President Trump and Mexican President Enrique Peña-Nieto, and the subsequent changes to immigration policy.

The melee with Mexico began when President Trump announced that construction of a wall between the two countries would move forward, and his insistence that the Mexicans pay for it. At about the same time, the president announced more aggressive measures to deport undocumented residents.

The announcements and their timing proved to be awkward for the Mexican President, and undiplomatic by any measure. Peña-Nieto, who had been planning to visit with President Trump in Washington the following week, came under intense pressure to call off the meeting. When Trump all but told him not to come if he would not agree to pay for the wall, Peña-Nieto announced that we would do just that and stay home.

Within days of his spat with Mexico, President Trump imposed sweeping restrictions on immigration. Trump’s executive order bans all immigration to the US from seven, majority Muslim countries for 90 days; bans refugee resettlement for 120 days until some as-yet undetermined additional vetting procedures are put in place (the ban is permanent for Syrian refugees); and sets policies that would prioritize Christians over Muslims for future immigration approval.

Any possible rupture in trade between Mexico and the United States would likely be much more painful for Mexico than for the US. Mexico is highly dependent on the US economically, sending 80% of its exports to this country. Nevertheless, there are reasons to be concerned about what is transpiring between the two nations, the new immigration restrictions, and what this all portends for the future.

Soon after Peña-Nieto cancelled his trip, the Trump administration floated the idea that a 20% tariff would be imposed on all Mexican goods to pay for the wall. While this threat was quickly pulled back as just “one option” among many, it raised an interesting question. If President Trump is willing to start a trade war with one of our closest allies, our third largest trading partner, and a country with which we share a 2,000-mile border, what else is he prepared to do? And how will it impact the economy going forward? We really are in uncharted waters – no one knows what will happen next.